Our Rule Of Twenty Five (Percent)

One of our biggest financial goals is to get out of all non-mortgage debt.

Thankfully, we don’t carry any credit card debt and our cars are both paid for, so the only thing we have at the moment is student loan balances.

When my wife was working, we were able to dedicate big chunks on a pretty regular basis, and the balances dropped quite a bit. My wife left the work force last year to take care of Baby Beagle, and coincidentally, her paychecks stopped. Sadly, this reduced our ability to pay extra in most months.

(In all seriousness, we realized this going in and were fine with the trade-off)

Even so, we still want paying down debt to be a priority, so we now have a rule of twenty five percent. That simply means that any ‘extra’ income we come across, twenty five percent will automatically go towards paying down debt.

At the moment, our extra cash inflows are pretty much limited to tax refunds. We haven’t gotten our return yet, but we did ‘hold back’ some money from each of my paychecks last year that we knew would be refunded to us if we’d let the government withhold more. We have that amount available to us now.

We’re also anticipating an actual refund.

As a one time thing, you may remember last year when I announced that my grandmother had passed away. She left us some money, and we will be applying the same rule towards the money we receive from her.

With these three items, we’ll be able to reduce our student loan debt about 20% from it’s current level. Our goal is to have these loans completely paid off by the end of 2012, and this will keep us on track.

I like the rule of twenty five percent, because it makes the application of the money towards the loans almost automatic. We know we’re coming into a little bit of cash, and we automatically take that twenty five percent out of any discussion of what we want to do with it, as my wife and I know that it will be going directly toward paying down debt.